XIII. Article XI

A. Text of
Article XI

Article XI*: General Elimination of Quantitative
Restrictions

1.
No prohibitions or restrictions other than
duties, taxes or other charges, whether made effective through quotas,
import or export licences or other measures, shall be instituted or
maintained by any contracting party on the importation of any product of
the territory of any other contracting party or on the exportation or
sale for export of any product destined for the territory of any other
contracting party.

(a)
Export prohibitions or restrictions
temporarily applied to prevent or relieve critical shortages of
foodstuffs or other products essential to the exporting contracting
party;

(b)
Import and export prohibitions or
restrictions necessary to the application of standards or regulations
for the classification, grading or marketing of commodities in
international trade;

(c)
Import restrictions on any
agricultural or fisheries product, imported in any form,* necessary to
the enforcement of governmental measures which operate:

(i)
to restrict the quantities of the like
domestic product permitted to be marketed or produced, or, if there is
no substantial domestic production of the like product, of a domestic
product for which the imported product can be directly substituted; or

(ii)
to remove a temporary surplus of the like
domestic product, or, if there is no substantial domestic production of
the like product, of a domestic product for which the imported product
can be directly substituted, by making the surplus available to certain
groups of domestic consumers free of charge or at prices below the
current market level; or

(iii)
to restrict the quantities permitted to
be produced of any animal product the production of which is directly
dependent, wholly or mainly, on the imported commodity, if the domestic
production of that commodity is relatively negligible.

Any contracting party applying restrictions on
the importation of any product pursuant to subparagraph (c) of this
paragraph shall give public notice of the total quantity or value of the
product permitted to be imported during a specified future period and of
any change in such quantity or value. Moreover, any restrictions applied
under (i) above shall not be such as will reduce the total of imports
relative to the total of domestic production, as compared with the
proportion which might reasonably be expected to rule between the two in
the absence of restrictions. In determining this proportion, the
contracting party shall pay due regard to the proportion prevailing
during a previous representative period and to any special factors*
which may have affected or may be affecting the trade in the product
concerned.

B. Text of Note Ad Article XI

Ad Articles XI, XII, XIII, XIV and XVIII

Throughout Articles
XI, XII, XIII,
XIV and
XVIII, the terms “import restrictions” or “export restrictions”
include restrictions made effective through state-trading operations.

Ad Article XI: Paragraph 2 (c)

The term “in any form” in this paragraph
covers the same products when in an early stage of processing and still
perishable, which compete directly with the fresh product and if freely
imported would tend to make the restriction on the fresh product
ineffective.

Paragraph 2, last subparagraph

The term “special factors” includes
changes in relative productive efficiency as between domestic and
foreign producers, or as between different foreign producers, but not
changes artificially brought about by means not permitted under the
Agreement.

“The prohibition against quantitative
restrictions is a reflection that tariffs are GATT’s border protection
‘of choice’. Quantitative restrictions impose absolute limits on
imports, while tariffs do not. In contrast to MFN tariffs which permit
the most efficient competitor to supply imports, quantitative
restrictions usually have a trade-distorting effect, their allocation
can be problematic and their administration may not be transparent.(838)

Notwithstanding this broad prohibition against
quantitative restrictions, GATT contracting parties over many years
failed to respect completely this obligation. From early in the GATT, in
sectors such as agriculture, quantitative restrictions were maintained
and even increased to the extent that the need to restrict their use
became central to the Uruguay Round negotiations. In the sector of
textiles and clothing, quantitative restrictions were maintained under
the Multifibre Agreement (further discussed below). Certain contracting
parties were even of the view that quantitative restrictions had
gradually been tolerated and accepted as negotiable and that Article XI
could not be and had never been considered to be, a provision
prohibiting such restrictions irrespective of the circumstances specific
to each case. This argument was, however, rejected in an adopted panel
report EEC — Imports from Hong Kong.(839)

Participants in the Uruguay Round recognized
the overall detrimental effects of non-tariff border restrictions
(whether applied to imports or exports) and the need to favour more
transparent price-based, i.e. tariff-based, measures; to this end they
devised mechanisms to phase-out quantitative restrictions in the sectors
of agriculture and textiles and clothing. This recognition is reflected
in the GATT 1994 Understanding on Balance-of-Payments Provisions(840),
the Agreement on Safeguards(841), the Agreement on Agriculture
where quantitative restrictions were eliminated(842) and the
Agreement on Textiles and Clothing (further discussed below) where
MFA-derived restrictions are to be completely eliminated by 2005.”(843)

(b) Burden of proof

598.
In India — Quantitative Restrictions,
the Panel examined whether the Indian import licensing system was
inconsistent with Article XI and, in case of inconsistency, whether it
was justified by Article XVIII. Referring to the Appellate Body Report
on US — Wool Shirts and Blouses and the Appellate Body Report
on EC — Hormones, the Panel stated on the issue of the burden
of proof under Article XI:

“In all instances, each party has to provide
evidence in support of each of its particular assertions. This implies
that the United States has to prove any of its claims in relation to the
alleged violation of Article XI:1 and XVIII:11. Similarly, India has to
support its assertion that its measures are justified under Article
XVIII:B. We also view the rules stated by the Appellate Body as
requiring that the United States as the complainant cannot limit itself
to stating its claim. It must present a prima facie case that the
Indian balance-of-payments measures are not justified by reference to
Articles XI:1 and XVIII:11 of GATT
1994.(844) Should the United
States do so, India would have to respond in order to rebut the claim.”(845)

(c) GATT practice

599.
GATT practice.

2. Article XI:1

(a) “restrictions or prohibitions”

600.
In India — Quantitative Restrictions,
the Panel set out the scope of the concept of “restriction”:

“[T]he text of Article XI:1 is very broad in
scope, providing for a general ban on import or export restrictions or
prohibitions ‘other than duties, taxes or other charges’. As was
noted by the panel in Japan — Trade in Semiconductors, the
wording of Article XI:1 is comprehensive: it applies ‘to all measures
instituted or maintained by a [Member] prohibiting or restricting the
importation, exportation, or sale for export of products other than
measures that take the form of duties, taxes or other charges.’(846)
The scope of the term ‘restriction’ is also broad, as seen in its
ordinary meaning, which is ‘a limitation on action, a limiting
condition or regulation’.(847)

The Panel in India — Autos endorsed
this view:

“The question of whether [the] measure can
appropriately be described as a restriction on importation turns on the
issue of whether Article XI can be considered to cover situations where
products are technically allowed into the market without an express
formal quantitative restriction, but are only allowed under certain
conditions which make the importation more onerous than if the condition
had not existed, thus generating a disincentive to import.

On a plain reading, it is clear that a ‘restriction’
need not be a blanket prohibition or a precise numerical limit. Indeed,
the term ‘restriction’ cannot mean merely ‘prohibitions’ on
importation, since Article XI:1 expressly covers both ‘prohibition or
restriction’. Furthermore, the Panel considers that the expression ‘limiting
condition’ used by the India — Quantitative Restrictions
panel to define the term ‘restriction’ and which this Panel
endorses, is helpful in identifying the scope of the notion in the
context of the facts before it. That phrase suggests the need to
identify not merely a condition placed on importation, but a condition
that is limiting, i.e. that has a limiting effect. In the context of
Article XI, that limiting effect must be on importation itself.”(848)

601.
The Panel in Dominican Republic —
Import and Sale of Cigarettes found that “not every measure
affecting the opportunities for entering the market would be covered by
Article XI, but only those measures that constitute a prohibition or
restriction on the importation of products, i.e. those measures which
affect the opportunities for importation itself.”(849)
Examining a bonding requirement, that Panel was not convinced that “the
requirement is a condition for the importation of cigarettes, that is,
that importation would not be allowed unless the bond requirement had
been complied with. The Panel therefore does not consider that there is
evidence that the bond requirement operates as a restriction on the
importation of cigarettes, in a manner inconsistent with Article XI:1 of
the GATT 1994.”(850)

(b) De facto prohibitions or
restrictions

602.
In Argentina — Hides and Leather,
the European Communities argued that Argentina’s measure violated
Article XI:1 by authorizing the presence of domestic tanners’
representatives in the customs inspection procedures for hides destined
for export operations, and thus, imposing de facto restrictions
on exports of hides.(851) The Panel noted:

“There can be no doubt, in our view, that
the disciplines of Article XI:1 extend to restrictions of a de facto
nature.(852) It is also readily apparent that Resolution 2235, if
indeed it makes effective a restriction, fits in the broad residual
category, specifically mentioned in Article XI:1, of ‘other measures’.”(853)

603.
Citing the Panel Report on Japan —
Film, the Panel in Argentina — Hides and Leather went on to
state:

“It is well-established in GATT/WTO
jurisprudence that only governmental measures fall within the ambit of
Article XI:1. This said, we recall the statement of the panel in Japan
— Measures Affecting Consumer Photographic Film and Paper to the
effect that:

‘[P]ast GATT cases demonstrate that the fact
that an action is taken by private parties does not rule out the
possibility that it may be deemed governmental if there is sufficient
governmental involvement with it. It is difficult to establish
bright-line rules in this regard, however. Thus, that possibility will
need to be examined on a case-by-case basis.’(854)

We agree with the view expressed by the panel
in Japan — Film. However, we do not think that it follows
either from that panel’s statement or from the text or context of
Article XI:1 that Members are under an obligation to exclude any
possibility that governmental measures may enable private parties,
directly or indirectly, to restrict trade, where those measures
themselves are not trade-restrictive.(855)”(856)

604.
The Panel in Argentina — Hides and
Leather had to determine, inter alia, whether the presence of
representatives of the domestic hide tanning industry in the Argentine
customs inspection procedures for hides destined for export was an
export restriction. The Panel found that evidence regarding trade
effects carried weight, but that a complaining party would need to
demonstrate how the measure at issue causes or contributes to a low
level of exports; in that case, the EC did not meet that burden.

“[A]s to whether Resolution 2235 makes
effective a restriction, it should be recalled that Article
XI:1, like
Articles I, II and III of the GATT
1994, protects competitive
opportunities of imported products, not trade flows.(857) In
order to establish that Resolution 2235 infringes Article
XI:1, the
European Communities need not prove actual trade effects. However, it
must be borne in mind that Resolution 2235 is alleged by the European
Communities to make effective a de facto rather than a de jure
restriction. In such circumstances, it is inevitable, as an evidentiary
matter, that greater weight attaches to the actual trade impact of a
measure.

Even if it emerges from trade statistics that
the level of exports is unusually low, this does not prove, in and of
itself, that that level is attributable, in whole or in part, to the
measure alleged to constitute an export restriction. Particularly in the
context of an alleged de facto restriction and where, as here,
there are possibly multiple restrictions,(858)
it is necessary
for a complaining party to establish a causal link between the contested
measure and the low level of exports.(859) In our view, whatever
else it may involve, a demonstration of causation must consist of a
persuasive explanation of precisely how the measure at issue causes or
contributes to the low level of exports.”(860)

605.
However, in Colombia — Ports of
Entry, the Panel found that:

“[T]o the extent [the complainant] were able
to demonstrate a violation of Article XI:1 based on the measure’s
design, structure, and architecture, the Panel is of the view that it
would not be necessary to consider trade volumes or a causal link
between the measure and its effects on trade volumes.

In support of its approach, the Panel recalls
that a number of panels have previously determined the existence of a
restriction on importation based on the design of the measure and its
potential to adversely affect importation, as opposed to the actual
resulting impact of the measure on trade flows. The Panel notes further
that more than one panel has declined to make a determination based on
the alleged trade effects of a measure.”(861)

606.
In China — Raw Materials, the
Panel found that an export price coordination requirement administered
by the China Chamber of Commerce of Metals, Minerals and Chemicals
Importers and Exporters (CCCMC) was a restriction on exportation. The
Panel found that various measures involving CCCMC were attributable to
China, because China acknowledged that it delegated authority to the
CCCMC to coordinate export prices;(862) also that the CCCMC’s
charter directed it to set and coordinate export prices for all branches
under its authority, including the raw materials at issue in that
dispute.(863) The Panel found that China “had in place a
system of penalties imposed on exporters that failed to set prices in
accordance with the coordinated export prices”(864) and “had
in place a system that imposed penalties on licensing entities that
issue licences to exporters that did not follow the coordinated export
prices.”(865) The Panel found:

“[T]he authority to coordinate export prices
and enforce these prices through the imposition of penalties on
exporting enterprises, or on export licensing entities that issue
licences to exporters that do not follow the coordinated export prices,
amounts to a requirement to coordinate export prices for the raw
materials at issue. The requirement derives from the fact that failure
to comply with the coordinated price will result in punishment that
rises to a level to prevent an enterprise from exporting altogether. In
addition, under the measures at issue, export licensing entities may be
punished for failing to enforce a given coordinated price. The measures
do not permit exporting enterprises to deviate from coordinated export
prices, or otherwise grant discretion to export licensing agencies to
make exceptions. Thus, coordinated export prices must be adhered to
whenever set by the CCCMC.”(866)

(c) Import prohibitions

607.
In Canada — Periodicals, the
Panel found that a complete ban on imports of certain magazines was
inconsistent with Article XI:1 of GATT:

“Since the importation of certain foreign
products into Canada is completely denied under Tariff Code 9958, it
appears that this provision by its terms is inconsistent with Article
XI:1 of GATT 1994.”(867)

608.
The Panel in US — Shrimp found
that the United States violated Article XI by imposing an import ban on
shrimp and shrimp products harvested by vessels of foreign nations where
such exporting country had not been certified by United States’
authorities as using methods not leading to the incidental killing of
sea turtles above certain levels. The Panel stated with reference to the
term “prohibitions or restrictions” as follows:

“[[T]he US statutory provision in question]
expressly requires the imposition of an import ban on imports from
non-certified countries. … the United States bans imports of shrimp or
shrimp products from any country not meeting certain policy conditions.
We finally note that previous panels have considered similar measures
restricting imports to be ‘prohibitions or restrictions’ within the
meaning of Article XI.(868)”(869)

609.
The Panel in Brazil — Retreaded
Tyres noted: “There is no ambiguity as to what ‘prohibitions’
on importation means: Members shall not forbid the importation of any
product of any other Member into their markets.”(870) That
Panel found that Brazilian measures prohibiting the importation of used
consumer goods and the importation of retreaded tyres constituted import
prohibitions inconsistent with Article XI:1.(871)

610.
The dispute in US — Poultry (China)
concerned a US legislative provision (“Section 727”) restricting the
use of funds allocated by the US Congress to the US Department of
Agriculture and its agency, the Food Safety and Inspection Service (FSIS).
The legislation provided that these funds could not be used to establish
or implement a rule allowing poultry products to be imported from China
into the United States.(872) The Panel found that this provision
imposed an import prohibition in violation of Article
XI:1:

“The establishment and implementation of a
rule by FSIS in the Federal Register allowing the importation of poultry
products from a given country is a prerequisite for the importation of
such products. Without the establishment or implementation of this rule,
countries are prohibited from importing poultry products into the United
States.

Section 727 prohibited the FSIS to use
appropriated funds to ‘establish’ or ‘implement’ a rule allowing
the importation of poultry products from China. This restriction on the
use of funds, had the effect of prohibiting the importation of poultry
products from China, because without a rule being established /
implemented, Chinese poultry products are banned from entering the US
market. Hence, Section 727 operated as a prohibition on the importation
of poultry products from China into the United States.”(873)

(d) Enforcement measures

611.
In Brazil — Retreaded Tyres, the
Panel examined fines of R$400 per unit on the importation of retreaded
tyres, which both parties agreed were an enforcement measure in addition
to and in support of the import ban on these tyres. Brazil confirmed
that the fines were intended to exceed the unit value of most tyres,
because they were a punitive measure intended to penalize traders that
circumvented the import ban.(874) The Panel analysed the fines as
follows:

“[W]hat is important in considering whether
a measure falls within the types of measures covered by Article XI:1 is
the nature of the measure. In the present case, we note that the fines
as a whole, including that on marketing, have the effect of penalizing
the act of “importing” retreaded tyres by subjecting retreaded tyres
already imported and existing in the Brazilian internal market to the
prohibitively expensive rate of fines. To that extent, we consider that
the fact that the fines are not administered at the border does not
alter their nature as a restriction on importation within the meaning of
Article XI:1. In addition, the level of the fines — R$ 400 per unit,
which significantly exceeds the average prices of domestically produced
retreaded tyres for passenger cars (R$ 100–280) — is significant
enough to have a restrictive effect on importation.

Thus, the Panel finds that the fines impose
limiting conditions in relation to the importation of retreaded tyres,
and thus act as a restriction on the importation of retreaded tyres
within the meaning of Article XI:1.”(875)

(e) Licensing schemes

612.
In India — Quantitative Restrictions,
the Panel examined the application of Article XI to India’s
discretionary import licensing system for items on the Negative List of
Imports, as well as India’s Special Import Licence system. The Panel
held that discretionary or non-automatic import licensing systems are
prohibited by Article XI:1:

“Under the GATT 1947, panels have examined
whether import and export licensing systems are restrictions under
Article XI:1. For example, in a case involving a so-called ‘SLQ’
regime, which concerned products subject in principle to quantitative
restrictions, but for which no quota amount had been set either in
quantity or value, permit applications being granted upon request, the
panel noted ‘that the SLQ regime was an import licensing procedure
which would amount to a quantitative restriction unless it provided for
the automatic issuance of licences’.(876) A similar
conclusion was reached in the above-cited Japan — Trade in
Semiconductors, where the panel found that ‘export licensing
practices by Japan, leading to delays of up to three months in the
issuing of licences for semi-conductors destined for contracting parties
other than the United States, had been non-automatic and constituted
restrictions on the exportation of such products inconsistent with
Article XI’.(877) These reports are consistent with the
ordinary meaning noted above, as discretionary or non-automatic
licensing systems by their very nature operate as limitations on action
since certain imports may not be permitted. Thus, in light of the terms
of Article XI:1 and these adopted panel reports, we conclude that a
discretionary or non-automatic import licensing requirement is a
restriction prohibited by Article XI:1.”(878)

613.
In Korea — Various Measures on Beef,
the Panel, in a finding not appealed, rejected the United States’
claim that “Korea’s regulatory regime [on beef imports], and thus
its licensing system, by granting exclusive authority to [certain Korean
agencies] to import beef, effectively establishes a non-automatic import
licensing system in violation of Article XI:1 …”. The Panel held
that discretionary licensing used in conjunction with a quantitative
restriction does not necessarily constitute a restriction additional to
the quantitative restriction:

“[W]here a quota is in place, the use of a
discretionary licensing system need not necessarily result in any
additional restriction. Where a discretionary licensing system is
implemented in conjunction with other restrictions, such as in the
present dispute, the manner in which the discretionary licensing system
is operated may create additional restrictions independent of those
imposed by the principal restriction. Since this issue was not
considered in the India — Quantitative Restrictions report,
that case does not provide authority for the proposition that a
discretionary licensing system, used in conjunction with a quantitative
restriction, necessarily provides some additional level of restriction
over and above the inherent restriction on access created through the
imposition of a quantitative restriction.”(879)

614.
In China — Raw Materials, the
Panel found that China’s export licensing regime on various raw
materials was inconsistent with Article XI:1 because it was operated in
a restrictive manner:

“[L]icences that are granted without
condition or those that implement an underlying measure that is
justified pursuant to another provision of the WTO Agreement, such as
GATT Article XI:2, XII,
XVIII, XIX,
XX or XXI, may be consistent with
Article XI:1, so long as the licence does not by its nature have a
limiting or restrictive effect. Conversely, a licence requirement that
results in a restriction additional to that inherent in a permissible
measure would be inconsistent with GATT Article
XI:1. Such restriction
may arise in cases where licensing agencies have unfettered or undefined
discretion to reject a licence application.

The Panel finds that China’s export
licensing regime is not per se inconsistent with Article XI:1 on
the basis that it permits export licensing agencies to require a licence
for ‘goods subject to … export restrictions’, as provided for in
Article 19 of China’s Foreign Trade Law. The Panel finds,
however, that the discretion that arises from the undefined and
generalized requirement to submit an unqualified number of ‘other’
documents of approval in Article 11(7) of China’s 2008 Export
Licence Administration Measures, as applicable to goods subject to
export licensing only, or the ‘other materials’ in Articles 5(5) and
8(4) of China’s Working Rules on Export Licenses, amounts to an
additional restriction inconsistent with Article
XI:1.”(880)

(f) Trade balancing requirements

615.
Paragraph 2 of the Annex to the TRIMs
Agreement provides that

“‘TRIMs which are inconsistent with the
obligation of general elimination of quantitative restrictions provided
for in [GATT Article XI:1]’ include those which are mandatory or
enforceable under domestic law or under administrative rulings, or
compliance with which is necessary to obtain an advantage, and which
restrict:

(a) the importation by an enterprise of
products used in or related to its local production, generally or to an
amount related to the volume or value of local production that it
exports;

(b) the importation by an enterprise of
products used in or related to its local production by restricting its
access to foreign exchange to an amount related to the foreign exchange
inflows attributable to the enterprise”

616.
In India — Autos, India had
argued that since Article XI of the GATT 1994 dealt with border measures
and the disputed Public Notice No. 60 did not deal with any such
measure, it could not violate Article XI. However, the Panel found that
as it required acceptance of the so-called “trade balancing condition”
it imposed a restriction on imports and therefore was inconsistent with
Article XI:1 of the GATT 1994:

“[I]n determining whether Public Notice No.
60 is inconsistent with Article XI:1 of the GATT 1994, the Panel
recalls its earlier analysis of the trade balancing condition as
contained in the previous section.

First, it recalls its conclusion that Public
Notice No. 60, as a governmental measure requiring manufacturers to
accept certain conditions in order to be allowed to import restricted
automotive kits and components, constituted a ‘measure’ within the
meaning of Article XI:1. This conclusion remains relevant to this
analysis and the Panel confirms its earlier conclusion in this respect.

Second, in order to establish whether Public
Notice No. 60, in itself, can be considered to be inconsistent with
Article XI:1, it has to be established that it constitutes a ‘restriction
… on importation’ within the meaning of that provision. The Panel
recalls in this respect its earlier conclusion that the trade balancing
condition, as contained both in Public Notice No. 60 and in the MOUs
signed thereunder, constituted a restriction on importation contrary to
Article XI:1 in that it effectively limits the amount of imports that a
manufacturer may make by linking imports to commitment to undertake a
certain amount of exports. Under such circumstance, an importer is not
free to import as many restricted kits or components as he otherwise
might so long as there is a finite limit to the amount of possible
exports.

…

The Panel therefore concludes that Public
Notice No. 60 in itself, to the extent that it requires the acceptance
of the trade balancing condition in order to gain the advantage of
importing the restricted products, imposes a restriction on imports and
is inconsistent with Article XI:1 of the GATT 1994.”(881)

(g) Minimum export price requirements

617.
In China — Raw Materials, the
Panel found that a minimum export price requirement is a quantitative
restriction on trade prohibited by Article XI:1.(882)

(h) Restrictions on circumstances of
importation

(i) Restrictions on imports by particular
persons

618.
The Panel in India — Quantitative
Restrictions examined, inter alia, an “Actual User
Requirement” under India’s Export and Import Policy 1997–2002,
under which import licences were generally available only to “Actual
Users” (persons who would employ the imported goods “for their own
use”). In a finding that was not appealed, the Panel determined that
the Actual User condition operated as a restriction on imports within
the meaning of Article XI:1:(883)

“As noted above, Article XI:1 is ‘comprehensive’
in that it prohibits import restrictions ‘made effective through
quotas, import or export licences or other measures’, excluding
from its coverage only ‘duties, taxes or other charges’. In
considering the scope of the prohibition, it is instructive to consider
how it has been dealt with in prior panel reports. For example, a
minimum import price system has been considered to be a restriction
within the meaning of Article XI:1.(884) In a case involving
limitations on the points of sale available to imported beer, a panel
found that such limitations were restrictions within the meaning of
Article XI:1.(885) These reports are in accord with the ordinary
meaning of the term ‘restriction’, which, as noted above, is ‘a
limitation on action, a limiting condition or regulation’. Applied to
the ‘Actual User’ condition, they lead to the conclusion that it is
a restriction on imports because it precludes imports of products for
resale by intermediaries, i.e. distribution to consumers who are unable
to import directly for their own immediate use is restricted.”(886)

(ii) Trading rights

619.
In recent years, Working Party Reports on
the accession of new WTO Members have included commitments regarding the
absence of restrictions on the right to trade. For instance, the Working
Party Report on the Accession of the Kyrgyz Republic included the
following paragraph:

“The representative of the Kyrgyz Republic
confirmed that from the date of accession, the Kyrgyz Republic would
ensure that all of its laws and regulations relating to the right to
trade in goods, and all fees, charges or taxes levied on such rights
would be in full conformity with its WTO obligations, including Articles
VIII:1(a), XI:1 and III:2 and
4 of the GATT 1994 and that it would also
implement such laws and regulations in full conformity with these
obligations. The Working Party took note of these commitments.”(887)

(iii) Restrictions on ports of entry

620.
The Panel in Colombia — Ports of
Entry examined the ports of entry measure described in paragraph 432
above. The measure had been implemented for a period of six months,
extended twice, and a similar measure had been in place earlier for 18
months.(888) The Panel concluded that “all of these
uncertainties, including access to one seaport for extended periods of
time and the likely increased costs that would arise for importers
operating under the constraints of the port restrictions, limit
competitive opportunities for imports arriving from Panama”(889)
and that “the ports of entry measure has a limiting effect on imports
arriving from Panama … the restriction to two ports of entry for
subject goods arriving from Panama imposed under the ports of entry
measure constitutes a restriction on importation within the meaning of
Article XI:1 of the GATT 1994.”(890)

(i) “restrictions made effective through
state-trading operations”

621.
The Panel in India — Quantitative
Restrictions, in examining the contested Indian measures, addressed
the phrase “restrictions made effective through state-trading
operations”. In its findings on this issue, which were not appealed,
the Panel emphasized that the fact that imports were effected through
state-trading operations did not per se mean that imports were
being restricted:

“In analyzing the US claim, we note that
violations of Article XI:1 can result from restrictions made effective
through state trading operations. This is made very clear in the Note Ad
Articles XI, XII, XIII, XIV and XVIII, which provides that ‘Throughout
Articles XI, XII, XIII,
XIV and
XVIII, the terms “import restrictions”
or “export restrictions” include restrictions made effective through
state-trading operations.’ It should be noted however, that the mere
fact that imports are effected through state trading enterprises would
not in itself constitute a restriction. Rather, for a restriction to be
found to exist, it should be shown that the operation of this state
trading entity is such as to result in a restriction.(891)

As noted above, the United States has shown in
some instances that there have been zero imports of products reserved to
state trading enterprises by India. We note, however, that canalization per
se will not necessarily result in the imposition of quantitative
restrictions within the meaning of Article XI:1, since an absence of
importation of a given product may not always be the result of the
imposition of a prohibitive quantitative restriction. For instance, the
absence of importation of snow ploughs into a tropical island cannot be
taken as sufficient evidence of the existence of import restrictions,
even if the right to import those products is granted to an entity with
exclusive or special privileges.”(892)

622.
The Panel in Korea — Various
Measures on Beef examined, inter alia, practices of the
Livestock Products Marketing Organization (LPMO), Korea’s state
trading agency for beef. The LPMO was the sole administrator of beef
imports; it imported 30 per cent of the beef import quota, through a
tendering system and with a mandate to stabilize demand and supply in
the market. Groups of private end-users also could import beef within
the beef import quota as allocated by LPMO. The LPMO also had a
distribution monopoly for the beef that it imported.(893) The
Panel made the factual finding that for a 7-month period in 1997–98,
the LPMO suspended its tenders (effectively closing the Korean market to
imported beef to the extent of the LPMO’s quota share) and failed to
discharge (sell its stock of) imported beef; also that this behaviour
had no economic justification.(894) It then examined the law
applicable to restrictions imposed by state-trading enterprises.

623.
Referring to the Note Ad Articles
XI, XII, XIII, XIV and XVIII, the Panel remarked that “[t]his is to
say that when an import restriction is imposed by a state-trading
enterprise, with or without exclusive rights, such restriction would be
covered by Article XI.”(895) Referring to the GATT Panel
Reports on Japan — Agricultural Products and Canada —
Marketing Agencies, the Panel found:

“[I]n the special case where a state-trading
enterprise possesses an import monopoly and a distribution monopoly, any
restriction it imposes on the distribution of imported products will
lead to a restriction on importation of the particular product over
which it has a monopoly. In other words, the effective control over both
importation and distribution channels by a state-trading enterprise
means that the imposition of any restrictive measure, including internal
measures, will have an adverse effect on the importation of the products
concerned. The Ad Note to Article XI therefore prohibits a
state-trading enterprise enjoying monopoly right over both importation
and distribution from imposing any internal restriction against such
imported products.”(896)

624.
The Panel found that “the LPMO’s lack
and delays in calling for tenders and its discharge practices between
the end of October 1997 and the end of May 1998, i.e. the LPMO’s
refusal to discharge into the Korean market imported beef led it to keep
important stocks of beef and in turn to reduce imports, were
restrictive. As demonstrated above, these LPMO practices are closely
connected and have led to import restrictions on foreign beef, contrary
to Article XI through the application of its Ad Note.”(897)

625.
The Panel further examined the LPMO’s
calls for tenders that distinguished between grain- and grass-fed beef,
and excluded grass-fed beef on some occasions. The Panel found that “the
LPMO practice to call for tenders on the basis of the distinction
between grass-fed and grain-fed beef, constitute an import restriction
in violation of Article XI of GATT, through the
Ad Note to Articles XI,
XII, XIII, XIV and XVIII” and remarked:(898)

“The Panel considers that the LPMO’s calls
for tenders that impose a distinction between grain- and grass-fed beef
constitute de facto limits on importation of grass-fed beef, thus
amounting to import restrictions. The Panel recalls its discussion on
Article XI, the Ad Note to Articles XI, XII, XIII, XIV and XVIII, where
it was concluded that the purpose of the Ad Note to Articles XI, XII,
XIII, XIV and XVIII is to ensure that WTO Members cannot escape their
basic obligations, such as the prohibition against import restrictions,
by using a state-trading enterprise.”(899)

(j) Bonding requirements

626.
In US — Certain EC Products, the
measures at issue were increased bonding requirements imposed by the
United States on imports from the European Communities. The increased
bonding requirements were imposed in order to secure the future
collection of additional import duties which were only later authorized
by the Dispute Settlement Body under Article 22.6 of the
DSU. While the
majority of the Panel found that this bonding requirement constituted a
duty or charge under Article II, one panellist found that this measure
fell under Article XI of GATT:

“Any bonding requirements to cover the
payment of tariffs above their bound levels cannot be viewed as a
mechanism in place to secure compliance with WTO compatible tariffs and
constituted, therefore, import restrictions for which there was no
justification. The actual trade effects of the 3 March Measure, which
are reflected on the charts contained in paragraph 2.37 of this Panel
Report, confirm its restrictive nature and effect. One Panellist found,
therefore, that the 3 March Measure constituted a ‘restriction’,
contrary to Article XI of GATT, rather than a duty or charge under
Article II.”(900)

(k) “prohibitions or restrictions … on the
exportation or sale for export of any product”

627.
Paragraph 2 of the Annex to the TRIMs
Agreement provides that

“‘TRIMs which are inconsistent with the
obligation of general elimination of quantitative restrictions provided
for in [GATT Article XI:1]’ include those which are mandatory or
enforceable under domestic law or under administrative rulings, or
compliance with which is necessary to obtain an advantage, and which
restrict: …

(c) the exportation or sale for export by an
enterprise of products, whether specified in terms of particular
products, in terms of volume or value of products, or in terms of a
proportion of volume or value of its local production.”

628.
The Panel Report on Argentina —
Hides and Leather, referred to in paragraph 602
above, examined a
claim that a measure of Argentina was an export restriction on hides in
violation of Article XI:1.

629.
The Panel in China — Raw Materials
found that China maintained export quotas on bauxite, coke, fluorspar,
silicon carbide and zinc, and found that for each of these products, “the
series of measures operating in concert has resulted in the imposition
of a restriction or prohibition on their exportation that are
inconsistent with China’s obligations under Article XI:1”.(901)

(l) GATT practice regarding Article XI:1

630.
See the GATT Analytical Index.

3. Article XI:2(a)

(a) Burden of proof

631.
The Panel in China — Raw Materials
found that “the burden is on the respondent … to demonstrate that
the conditions of Article XI:2(a) are met in order to demonstrate that
no inconsistency arises under Article XI:1.”(902) The Panel
concluded that China had failed to demonstrate that the export quota
applied to refractory-grade bauxite was justified pursuant to Article
XI:2(a).(903) While the Panel found that refractory-grade bauxite
is “essential” to China on the basis of its importance in steel
production,(904) it found that the export restriction on this
product, which had been in place at least since 2000, was not “temporarily
applied”,(905) and it did not agree that China currently faces
a “critical shortage” of refractory bauxite.(906)

633.
The Panel in China — Raw Materials
interpreted the word “temporarily” as meaning that Article XI:2(a)
permits the application of restrictions or prohibitions for a limited
time:

“In the Panel’s view, an interpretation
that Article XI:2(a) permits the application of a measure for a limited
time under limited circumstances would be in harmony with the protection
that may be available to a Member under Article XX(g), which addresses
the conservation of exhaustible natural resources. To conclude otherwise
would allow Members to resort indistinguishably to either Article
XI:2(a) or XX(g) to address the problem of an exhaustible natural
resource.

As mentioned above, Article XX(g) incorporates
additional protections in its chapeau to ensure that the application of
a measure does not result in arbitrary or unjustifiable discrimination
or amount to a disguised restriction on international trade. Article
XI:2(a) does not impose similar limitations on Members’ actions. In
the Panel’s view, the absence of such safeguards in Article XI:2(a)
lends support to our view that a restriction or ban applied under
Article XI:2(a) must be of a limited duration and not indefinite.”(908)

(d) “essential products”

634.
The Panel in China — Raw Materials
found that “a product may be ‘essential’ within the meaning of
Article XI:2(a) when it is ‘important’ or ‘necessary’ or ‘indispensable’
to a particular Member. This may include a product that is an ‘input’
to an important product or industry. However, the determination of
whether a particular product is ‘essential’ to a Member must take
into consideration the particular circumstances faced by that Member at
the time that a Member applied the restriction.”(909)

“The Panel does not consider that the terms
of Article XI:2, nor the statement made in the context of negotiating
the text of Article XI:2 that the importance of a product ‘should be
judged in relation to the particular country concerned’, means that a
WTO Member may, on its own, determine whether a product is essential to
it. If this were the case, Article XI:2 could have been drafted in a way
such as Article XXI(b) of the GATT
1994, which states: ‘Nothing in
this Agreement shall be construed … to prevent any contracting party
from taking any action which it considers necessary for the
protection of its essential security interests’ (emphasis added). In
the Panel’s view, the determination of whether a product is ‘essential’
to that Member should take into consideration the particular
circumstances faced by that Member at the time when a Member applies a
restriction or prohibition under Article
XI:2(a).”(910)

(e) “prevent or relieve critical shortages”

635.
The Panel in China — Raw Materials
found that the term “critical shortage” in Article XI:2(a) “refers
to those situations or events that may be relieved or prevented through
the application of measures on a temporary, and not indefinite or
permanent, basis.”(911) Comparing Article XI:2(a) with
Article
XX(g), the Panel found that “[t]he benefits and strictures of Article
XX(g) must not be transposed to Article
XI:2(a), or vice versa”(912)
and “disagree[d] that Article XI:2(a) would permit long-term measures
to be imposed to address an inevitable depletion of a finite resource.”(913)

“Article XI:2(a) authorizes derogation from
the prohibition on export and import restrictions under Article XI:1 in
order to prevent or relieve critical shortages of products essential to
the Member taking action. Thus like Article XX(g),
Article XI:2(a)
operates as an exception, but only with respect to the obligations
contained in Article XI:1, and not with respect to GATT obligations more
broadly. This suggests to us that the reach of Article XI:2(a) would not
be the same as that of Article XX(g); they are intended to address
different situations and thus must mean different things.

As with Article XX(g), the right to invoke
Article XI:2(a) is circumscribed, but in a much different way. The Panel
considers that this difference, too, is important in interpreting the
scope of Article XI:2(a). Article XI:2(a) is not confined to
conservation measures and any exceptional measures must be ‘temporarily
applied’ to address ‘critical’ shortages. Conservation measures
tempered by the chapeau of Article XX, which takes into account
conditions outside the Member taking action, and by operating together
with domestic restrictions, will necessarily be different from temporary
measures seeking to address a domestic crisis or a matter involving ‘suspense
or grave fear’ in the Member taking action.”(914)

636.
The Decision on Notification Procedures
for Quantitative Restrictions, adopted by the Council for Trade in Goods
on 1 December 1995,(915) requires Members to make complete
notifications of the quantitative restrictions which they maintain by 31
January 1996 and at two-yearly intervals thereafter, and to notify
changes to their quantitative restrictions as and when these changes
occur. These notifications are stored in a database of quantitative
restrictions. As required by the Decision, the Secretariat publishes
periodically a document listing the Members having made a notification
(G/MA/NTM/QR/1 and Addenda). The Secretariat makes the database
available to Members. The notifications are available for consultation
in the Secretariat. At its meeting on 24 June 1997, the Committee on
Market Access adopted a format for the submissions of notifications of
quantitative restrictions.(916)

637.
The Decision on Reverse Notification of
Non-Tariff Measures, adopted by the Council for Trade in Goods on 1
December 1995,(917) provides that Members may notify non-tariff
measures maintained by other Members insofar as such measures are
neither subject to any existing WTO notification obligations nor to any
other reverse notification possibilities under the WTO Agreement. The
Member maintaining the measures shall comment on each of the points
contained in the notification. The Decision established an Inventory of
Non-Tariff Measures, made available to Members in a loose-leaf format.
As of 2010, one such reverse notification had been received.(918)

638.
In July 2003, the Negotiating Group on
Market Access agreed that participants would submit new notifications of
non-tariff barriers which their exporters were facing in various
markets, to supplement an earlier series of such notifications. The
notifications received were collected and circulated in Secretariat
documents from 2002 to 2006.(919)

5. Relationship with other GATT provisions

(a) Article II

639.
In US — Certain EC Products, the
majority of the Panel found the increased bonding requirements imposed
on imports in order to secure the collection of additional import duties
to be a duty or charge under Article
II. One panellist found the measure
at issue to be a restriction within the meaning and scope of Article
XI.
See paragraph 626 above.

641.
In US — 1916 Act (Japan), after
finding a violation of Article VI, the Panel held that in the case
before it, Article VI addressed the “basic feature” of the measure
at issue more directly than Article XI; however, the Panel stated
explicitly that this did not mean that Article VI applied to the
exclusion of Article XI:1. Nevertheless, the Panel found that it was
entitled to exercise judicial economy and decided not to review the
claims of Japan under Article XI.(920)

“when dealing with measures relating to
agricultural products which should have been converted into tariffs or
tariff-quotas, a violation of Article XI of GATT and its Ad Note
relating to state-trading operations would necessarily constitute a
violation of Article 4.2 of the Agreement on Agriculture and its
footnote which refers to non-tariff measures maintained through
state-trading enterprises.”(921)

646.
Paragraph 2 of the Illustrative List in
the Annex to the TRIMs Agreement lists three trade-related investment
measures “that are inconsistent with the obligation of general
elimination of quantitative restrictions provided for in paragraph 1 of
Article XI of GATT 1994”: see paragraphs 615 and
627 above. The Panel
in Colombia — Ports of Entry reviewed the Illustrative List and
found that “Article XI:1 is not restricted to such a finite list of
measures. On the contrary, Article XI:1 applies to ‘prohibitions or
restrictions other than duties, taxes or other charges’ and does not
include finite categories.”(922)

(c) SPS Agreement

647.
In Australia — Salmon, the Panel
examined the Canadian claim that the import prohibition of uncooked
salmon was inconsistent with Article XI of the GATT as well as
with several provisions of the SPS Agreement. After finding that the
Australian measure was inconsistent with the requirements of the SPS
Agreement, the Panel did not find it necessary to also examine the
measure in the light of Article XI.(923)

(d) Anti-Dumping Agreement

648.
The Panel in US — 1916 Act (Japan),
after finding that the measure at issue was inconsistent with provisions
of the Anti-Dumping Agreement (and Article VI of the GATT), did
not find it necessary to address the same measure also in the light of
Article XI. See also paragraph 641 above.

XIV. Article XII

A. Text of Article XII

Article XII*: Restrictions to Safeguard the
Balance of Payments

1.
Notwithstanding the provisions of paragraph
1 of Article XI, any contracting party, in order to safeguard its
external financial position and its balance of payments, may restrict
the quantity or value of merchandise permitted to be imported, subject
to the provisions of the following paragraphs of this Article.

2.
(a) Import restrictions instituted,
maintained or intensified by a contracting party under this Article
shall not exceed those necessary:

(i)
to forestall the imminent threat of, or to
stop, a serious decline in its monetary reserves, or

(ii)
in the case of a contracting party with
very low monetary reserves, to achieve a reasonable rate of increase in
its reserves.

Due regard shall be paid in either case to any
special factors which may be affecting the reserves of such contracting
party or its need for reserves, including, where special external
credits or other resources are available to it, the need to provide for
the appropriate use of such credits or resources.

(b)
Contracting parties applying restrictions
under sub-paragraph (a) of this paragraph shall progressively relax them
as such conditions improve, maintaining them only to the extent that the
conditions specified in that sub-paragraph still justify their
application. They shall eliminate the restrictions when conditions would
no longer justify their institution or maintenance under that
sub-paragraph.

3.
(a) Contracting parties undertake, in
carrying out their domestic policies, to pay due regard to the need for
maintaining or restoring equilibrium in their balance of payments on a
sound and lasting basis and to the desirability of avoiding an
uneconomic employment of productive resources. They recognize that, in
order to achieve these ends, it is desirable so far as possible to adopt
measures which expand rather than contract international trade.

(b)
Contracting parties applying restrictions
under this Article may determine the incidence of the restrictions on
imports of different products or classes of products in such a way as to
give priority to the importation of those products which are more
essential.

(i) to avoid unnecessary damage to the
commercial or economic interests of any other contracting party;*

(ii) not to apply restrictions so as to
prevent unreasonably the importation of any description of goods in
minimum commercial quantities the exclusion of which would impair
regular channels of trade; and

(iii) not to apply restrictions which would
prevent the importations of commercial samples or prevent compliance
with patent, trade mark, copyright, or similar procedures.

(d)
The contracting parties recognize that, as
a result of domestic policies directed towards the achievement and
maintenance of full and productive employment or towards the development
of economic resources, a contracting party may experience a high level
of demand for imports involving a threat to its monetary reserves of the
sort referred to in paragraph 2 (a) of this
Article. Accordingly, a
contracting party otherwise complying with the provisions of this
Article shall not be required to withdraw or modify restrictions on the
ground that a change in those policies would render unnecessary
restrictions which it is applying under this Article.

4.
(a) Any contracting party applying new
restrictions or raising the general level of its existing restrictions
by a substantial intensification of the measures applied under this
Article shall immediately after instituting or intensifying such
restrictions (or, in circumstances in which prior consultation is
practicable, before doing so) consult with the CONTRACTING PARTIES as to
the nature of its balance of payments difficulties, alternative
corrective measures which may be available, and the possible effect of
the restrictions on the economies of other contracting parties.

(b)
On a date to be determined by them,* the
CONTRACTING PARTIES shall review all restrictions still applied under
this Article on that date. Beginning one year after that date,
contracting parties applying import restrictions under this Article
shall enter into consultations of the type provided for in sub-paragraph
(a) of this paragraph with the CONTRACTING PARTIES annually.

(c)
(i) If, in the course of consultations
with a contracting party under sub-paragraph (a) or
(b) above, the
CONTRACTING PARTIES find that the restrictions are not consistent with
provisions of this Article or with those of Article XIII (subject to the
provisions of Article XIV), they shall indicate the nature of the
inconsistency and may advise that the restrictions be suitably modified.

(ii) If, however, as a result of the
consultations, the CONTRACTING PARTIES determine that the restrictions
are being applied in a manner involving an inconsistency of a serious
nature with the provisions of this Article or with those of Article XIII
(subject to the provisions of Article
XIV) and that damage to the trade
of any contracting party is caused or threatened thereby, they shall so
inform the contracting party applying the restrictions and shall make
appropriate recommendations for securing conformity with such provisions
within the specified period of time. If such contracting party does not
comply with these recommendations within the specified period, the
CONTRACTING PARTIES may release any contracting party the trade of which
is adversely affected by the restrictions from such obligations under
this Agreement towards the contracting party applying the restrictions
as they determine to be appropriate in the circumstances.

(d)
The CONTRACTING PARTIES shall invite any
contracting party which is applying restrictions under this Article to
enter into consultations with them at the request of any contracting
party which can establish a prima facie case that the restrictions are
inconsistent with the provisions of this Article or with those of
Article XIII (subject to the provisions of Article
XIV) and that its
trade is adversely affected thereby. However, no such invitation shall
be issued unless the CONTRACTING PARTIES have ascertained that direct
discussions between the contracting parties concerned have not been
successful. If, as a result of the consultations with the CONTRACTING
PARTIES, no agreement is reached and they determine that the
restrictions are being applied inconsistently with such provisions, and
that damage to the trade of the contracting party initiating the
procedure is caused or threatened thereby, they shall recommend the
withdrawal or modification of the restrictions. If the restrictions are
not withdrawn or modified within such time as the CONTRACTING PARTIES
may prescribe, they may release the contracting party initiating the
procedure from such obligations under this Agreement towards the
contracting party applying the restrictions as they determine to be
appropriate in the circumstances.

(e)
In proceeding under this paragraph, the
CONTRACTING PARTIES shall have due regard to any special external
factors adversely affecting the export trade of the contracting party
applying the restrictions.*

(f)
Determinations under this paragraph shall
be rendered expeditiously and, if possible, within sixty days of the
initiation of the consultations.

5.
If there is a persistent and widespread
application of import restrictions under this Article, indicating the
existence of a general disequilibrium which is restricting international
trade, the CONTRACTING PARTIES shall initiate discussions to consider
whether other measures might be taken, either by those contracting
parties the balance of payments of which are under pressure or by those
the balance of payments of which are tending to be exceptionally
favourable, or by any appropriate intergovernmental organization, to
remove the underlying causes of the disequilibrium. On the invitation of
the CONTRACTING PARTIES, contracting parties shall participate in such
discussions.

B. Text of Note Ad Article XII

Ad Article XII

The CONTRACTING PARTIES shall make provision
for the utmost secrecy in the conduct of any consultation under the
provisions of this Article.

Paragraph 3 (c)(i)

Contracting parties applying restrictions
shall endeavour to avoid causing serious prejudice to exports of a
commodity on which the economy of a contracting party is largely
dependent.

Paragraph 4 (b)

It is agreed that the date shall be within
ninety days after the entry into force of the amendments of this Article
effected by the Protocol Amending the Preamble and
Parts II and III of
this Agreement. However, should the CONTRACTING PARTIES find that
conditions were not suitable for the application of the provisions of
this subparagraph at the time envisaged, they may determine a later
date; Provided that such date is not more than thirty days after
such time as the obligations of Article VIII, Sections 2, 3 and 4, of
the Articles of Agreement of the International Monetary Fund become
applicable to contracting parties, members of the Fund, the combined
foreign trade of which constitutes at least fifty per centum of the
aggregate foreign trade of all contracting parties.

Paragraph 4 (e)

It is agreed that paragraph 4 (e) does not add
any new criteria for the imposition or maintenance of quantitative
restrictions for balance of payments reasons. It is solely intended to
ensure that all external factors such as changes in the terms of trade,
quantitative restrictions, excessive tariffs and subsidies, which may be
contributing to the balance of payments difficulties of the contracting
party applying restrictions, will be fully taken into account.

C. Understanding on the Balance-of-Payments
Provisions of the General Agreement on Tariffs and Trade 1994

[The text of the Understanding on the
Balance-of-Payments Provisions of the General Agreement on Tariffs and
Trade 1994 can be found immediately following the text of Article XVIII
below.]

D. Interpretation and Application of Article XII

1. General

649.
The Panel in Chile — Price Band
System, interpreting footnote 1 to Article 4.2 of the Agreement on
Agriculture, found that “Article XII is clearly in the nature of an exception
to the general obligations of GATT 1994. In our view, therefore,
footnote 1 was meant to exclude from the scope of Article 4.2 only those
measures which are maintained on the basis of GATT 1994 provisions which
allow Members, subject to certain conditions, to act inconsistently with
their general obligations under GATT 1994.”(924)

650.
The interpretation and application of the
note Ad Article XI, XII, XIII, XIV and XVIII, which clarifies
that the terms “import restrictions” or “export restrictions”
used in these Articles include “restrictions made effective through
state-trading operations”, was discussed by the Panels on India —
Quantitative Restrictions and on Korea — Various Measures on
Beef. See paragraphs 621–622
above.

2. BOP Understanding

651.
This Chapter discusses
balance-of-payments measures generally, and interpretation and
application of the Understanding on the Balance-of-Payments Provisions
of the GATT 1994, under Article XVIII
below.

3. Relationship with other GATT provisions

(a) Article II

652.
The Understanding on the
Balance-of-Payments Provisions of the GATT 1994 provides in paragraph 2
regarding an exception from Article II:1(b) for “price-based measures
taken for balance-of-payments purposes”:

“Members confirm their commitment to give
preference to those measures which have the least disruptive effect on
trade. Such measures (referred to in this Understanding as ‘price-based
measures’) shall be understood to include import surcharges, import
deposit measures or other equivalent trade measures with an impact on
the price of imported goods. It is understood that, notwithstanding the
provisions of Article II, price-based measures taken for
balance-of-payments purposes may be applied by a Member in excess of the
duties inscribed in the Schedule of that Member. …”

XV. Article XIII

1. No prohibition or restriction shall be
applied by any contracting party on the importation of any product of
the territory of any other contracting party or on the exportation of
any product destined for the territory of any other contracting party,
unless the importation of the like product of all third countries or the
exportation of the like product to all third countries is similarly
prohibited or restricted.

2. In applying import restrictions to any
product, contracting parties shall aim at a distribution of trade in
such product approaching as closely as possible the shares which the
various contracting parties might be expected to obtain in the absence
of such restrictions and to this end shall observe the following
provisions:

(a) Wherever practicable, quotas
representing the total amount of permitted imports (whether allocated
among supplying countries or not) shall be fixed, and notice given of
their amount in accordance with paragraph 3 (b)
of this Article;

(b) In cases in which quotas are not
practicable, the restrictions may be applied by means of import licences
or permits without a quota;

(c) Contracting parties shall not,
except for purposes of operating quotas allocated in accordance with
subparagraph (d) of this paragraph, require that import licences
or permits be utilized for the importation of the product concerned from
a particular country or source;

(d) In cases in which a quota is
allocated among supplying countries the contracting party applying the
restrictions may seek agreement with respect to the allocation of shares
in the quota with all other contracting parties having a substantial
interest in supplying the product concerned. In cases in which this
method is not reasonably practicable, the contracting party concerned
shall allot to contracting parties having a substantial interest in
supplying the product shares based upon the proportions, supplied by
such contracting parties during a previous representative period, of the
total quantity or value of imports of the product, due account being
taken of any special factors which may have affected or may be affecting
the trade in the product. No conditions or formalities shall be imposed
which would prevent any contracting party from utilizing fully the share
of any such total quantity or value which has been allotted to it,
subject to importation being made within any prescribed period to which
the quota may relate.*

3. (a)
In cases in which import
licences are issued in connection with import restrictions, the
contracting party applying the restrictions shall provide, upon the
request of any contracting party having an interest in the trade in the
product concerned, all relevant information concerning the
administration of the restrictions, the import licences granted over a
recent period and the distribution of such licences among supplying
countries; Provided that there shall be no obligation to supply
information as to the names of importing or supplying enterprises.

(b) In the case of import restrictions
involving the fixing of quotas, the contracting party applying the
restrictions shall give public notice of the total quantity or value of
the product or products which will be permitted to be imported during a
specified future period and of any change in such quantity or value. Any
supplies of the product in question which were en route at the
time at which public notice was given shall not be excluded from entry; Provided
that they may be counted so far as practicable, against the quantity
permitted to be imported in the period in question, and also, where
necessary, against the quantities permitted to be imported in the next
following period or periods; and Provided further that if any
contracting party customarily exempts from such restrictions products
entered for consumption or withdrawn from warehouse for consumption
during a period of thirty days after the day of such public notice, such
practice shall be considered full compliance with this subparagraph.

(c) In the case of quotas allocated
among supplying countries, the contracting party applying the
restrictions shall promptly inform all other contracting parties having
an interest in supplying the product concerned of the shares in the
quota currently allocated, by quantity or value, to the various
supplying countries and shall give public notice thereof.

4. With regard to restrictions applied in
accordance with paragraph 2 (d) of this Article or under
paragraph 2 (c) of Article XI, the selection of a representative period
for any product and the appraisal of any special factors* affecting the
trade in the product shall be made initially by the contracting party
applying the restriction; Provided that such contracting party
shall, upon the request of any other contracting party having a
substantial interest in supplying that product or upon the request of
the CONTRACTING PARTIES, consult promptly with the other contracting
party or the CONTRACTING PARTIES regarding the need for an adjustment of
the proportion determined or of the base period selected, or for the
reappraisal of the special factors involved, or for the elimination of
conditions, formalities or any other provisions established unilaterally
relating to the allocation of an adequate quota or its unrestricted
utilization.

5. The provisions of this Article shall apply
to any tariff quota instituted or maintained by any contracting party,
and, in so far as applicable, the principles of this Article shall also
extend to export restrictions.

B. Text of Note Ad Article XIII

Ad Article XIII: Paragraph 2 (d)

No mention was made of “commercial
considerations” as a rule for the allocation of quotas because it was
considered that its application by governmental authorities might not
always be practicable. Moreover, in cases where it is practicable, a
contracting party could apply these considerations in the process of
seeking agreement, consistently with the general rule laid down in the
opening sentence of paragraph 2.

655.
In EC — Bananas III, the Panel,
in a finding not reviewed by the Appellate Body, held that the object
and purpose of Article XIII:2 is to minimize the impact of quantitative
restrictions on trade flows, and set out how the provisions of Article
XIII work together:

“The working of Article XIII is clear. If
quantitative restrictions are used (as an exception to the general ban
on their use in Article XI), they are to be used in the least
trade-distorting manner possible. … Article XIII:5 makes it clear …
that Article XIII applies to the administration of tariff quotas. In
light of the terms of Article XIII, it can be said that the object and
purpose of Article XIII:2 is to minimize the impact of a quota or tariff
quota regime on trade flows by attempting to approximate under such
measures the trade shares that would have occurred in the absence of the
regime. In interpreting the terms of Article XIII, it is important to
keep their context in mind. Article XIII is basically a provision
relating to the administration of restrictions authorized as exceptions
to one of the most basic GATT provisions — the general ban on quotas
and other non-tariff restrictions contained in Article
XI.

… Article XIII:1 establishes the basic
principle that no import restriction shall be applied to one Member’s
products unless the importation of like products from other Members is
similarly restricted. Thus, a Member may not limit the quantity of
imports from some Members but not from others. But as indicated by the
terms of Article XIII (and even its title, ‘Non-discriminatory
Administration of Quantitative Restrictions’), the non-discrimination
obligation extends further. The imported products at issue must be ‘similarly’
restricted. A Member may not restrict imports from some Members using
one means and restrict them from another Member using another means.
…”(925)

656.
The Panel Report in EC — Bananas III
(Article 21.5 — Ecuador II) notes that “Article XIII of the GATT
1994 is relevant to one of the few remaining permissible practices of
with a quantitative dimension in agriculture: tariff quotas.”(926)

657.
The Panel in US — Line Pipe
found that safeguard measures are subject to Article XIII in addition to
the Agreement on Safeguards, and consequently that the safeguard measure
at issue in that dispute was subject to Article
XIII.(927) See
also paragraph 690 below.

2. Article XIII:1: “the importation … is
similarly restricted”

658.
In EC — Bananas III, the
Appellate Body reviewed the Panel’s finding that the EC import regime
for bananas was inconsistent with Article XIII because the European
Communities allocated tariff quota shares to some Members without
allocating such shares to other Members. The European Communities
claimed that “there [were] two separate EC import regimes for bananas,
the preferential regime for traditional ACP bananas and the erga
omnes regime for all other imports of bananas” and argued that “the
non-discrimination obligations of Article
I:1, X:3(a) and XIII of GATT
1994 and Article 1.3 of the Licensing Agreement apply only within
each of these separate regimes.”(928) Rejecting this argument,
the Panel found:

“[Article XIII:1 and Article XIII:2] do not
provide a basis for analysing quota allocation regimes separately
because they have different legal bases or because different tariff
rates are applicable. Article XIII applies to allocations of shares in
an import market for a particular product which is restricted by a quota
or tariff quota. In our view, its nondiscrimination requirements apply
to that market for that product, irrespective of whether or how a Member
subdivides it for administrative or other reasons. Indeed, to accept
that a Member could establish quota regimes by different legal
instruments and argue that they are not as a consequence subject to
Article XIII would be, as argued by the Complainants, to eviscerate the
nondiscrimination provisions of Article XIII.”(929)

“The essence of the non-discrimination
obligations is that like products should be treated equally,
irrespective of their origin. As no participant disputes that all
bananas are like products, the non-discrimination provisions apply to all
imports of bananas, irrespective of whether and how a Member categorizes
or subdivides these imports for administrative or other reasons. If, by
choosing a different legal basis for imposing import restrictions, or by
applying different tariff rates, a Member could avoid the application of
the non-discrimination provisions to the imports of like products from
different Members, the object and purpose of the non-discrimination
provisions would be defeated. It would be very easy for a Member to
circumvent the non-discrimination provisions of the GATT 1994 and the
other Annex 1A agreements, if these provisions apply only within
regulatory regimes established by that Member.”(930)

660.
In EC — Bananas III, the
Appellate Body found that the European Communities’ import regime for
bananas violated Article XIII:1, stating as follows:

“[A]llocation to Members not having a
substantial interest must be subject to the basic principle of
nondiscrimination. When this principle of non-discrimination is applied
to the allocation of tariff quota shares to Members not having a
substantial interest, it is clear that a Member cannot, whether by
agreement or by assignment, allocate tariff quota shares to some Members
not having a substantial interest while not allocating shares to other
Members who likewise do not have a substantial interest. To do so is
clearly inconsistent with the requirement in Article XIII:1 that a
Member cannot restrict the importation of any product from another
Member unless the importation of the like product from all third
countries is ‘similarly’ restricted.”(931)

661.
On GATT practice.

3. Article XIII:2

(a) Chapeau: “aim at a distribution of trade”

662.
In US — Line Pipe, the Panel
held: “the chapeau of Article XIII:2 contains a general rule, and not
merely a statement of principle. This is confirmed by the Note Ad
Article XIII:2, which refers to “the general rule laid down in the
opening sentence of paragraph 2”.(932)

663.
In US — Line Pipe, the Panel
examined a US safeguard measure which provided that, for three years and
one day, a higher tariff (declining each year) would be imposed on all
imports from each country in excess of 9,000 short tons. Mexico and
Canada were excluded from the remedy. The Panel found that this measure
was inconsistent with the “general rule” in the chapeau of Article
XIII:2 because it was not based on historical trade patterns, and did
not aim at tracking the distribution of trade that would be expected in
its absence:

“[I]n our view, Korea is correct to argue
that a Member would violate the general rule set forth in the chapeau of
Article XIII:2 if it imposes safeguard measures without respecting
traditional trade patterns (at least in the absence of any evidence
indicating that the shares a Member might be expected to obtain in the
future differ, as a result of changed circumstances, from its historical
share). Trade flows before the imposition of a safeguard measure provide
an objective, factual basis for projecting what might have occurred in
the absence of that measure.

There is nothing in the record before the
Panel to suggest that the line pipe measure was based in any way on
historical trade patterns in line pipe, or that the United States
otherwise ‘aim[ed] at a distribution of trade … approaching as
closely as possible the shares which the various Members might be
expected to obtain in the absence of’ the line pipe measure. Instead,
as noted by Korea, ‘the in-quota import volume originating from Korea,
the largest supplier historically to the US market, was reduced to the
same level as the smallest — or even then non-existent — suppliers
to the US market (9,000 short tons)’. For this reason, we find that
the line pipe measure is inconsistent with the general rule contained in
the chapeau of Article XIII:2.”(933)

664.
The Panel in US — Line Pipe, in
a statement not reviewed by the Appellate Body, highlighted the
importance of respecting traditional trade patterns when imposing
safeguard measures:

“In our view, Korea is correct to argue that
a Member would violate the general rule set forth in the chapeau of
Article XIII:2 if it imposes safeguard measures without respecting
traditional trade patterns (at least in the absence of any evidence
indicating that the shares a Member might be expected to obtain in the
future differ, as a result of changed circumstances, from its historical
share). Trade flows before the imposition of a safeguard measure provide
an objective, factual basis for projecting what might have occurred in
the absence of that measure.”(934)

665.
In EC — Bananas III, the
Appellate Body found a violation of Article XIII:2 in respect of the
European Communities’ import regime for bananas and, more
specifically, in respect of the treatment granted to countries which had
concluded with the European Communities the so-called Banana Framework
Agreement (BFA). A quota share not utilized by one of the BFA countries
could, at the joint request of all BFA countries, be transferred to
another BFA country. No equivalent regulation existed with respect to
banana exporting countries that were not part of the BFA. The Panel
found that this aspect of the measure was inconsistent with the
requirement to approximate, in the administration of a quantitative
restriction, the relative trade flows which would exist in the absence
of the measure at issue:

“Pursuant to these reallocation rules, a
portion of a tariff quota share not used by the BFA country to which
that share is allocated may, at the joint request of the BFA countries,
be reallocated to the other BFA countries. … [T]he reallocation of
unused portions of a tariff quota share exclusively to other BFA
countries, and not to other non-BFA banana-supplying Members, does not
result in an allocation of tariff quota shares which approaches ‘as
closely as possible the shares which the various Members might be
expected to obtain in the absence of the restrictions’. Therefore, the
tariff quota reallocation rules of the BFA are also inconsistent with
the chapeau of Article XIII:2 of the GATT 1994.”(935)

666.
In EC — Poultry, Brazil
challenged the European Communities’ calculation of the tariff quota
shares because imports from China — at that time not a Member of the
WTO — had been included in this allocation of tariff quota shares. The
Panel, in a finding expressly endorsed by the Appellate Body(936),
found that nothing in Article XIII required the calculation of tariff
quota shares only on the basis of imports from WTO Members:

“We note that Article XIII carefully
distinguishes between Members (‘contracting parties’ in the original
text of GATT 1947) and ‘supplying countries’ or ‘source’. There
is nothing in Article XIII that obligates Members to calculate tariff
quota shares on the basis of imports from Members only.(937) If
the purpose of using past trade performance is to approximate the shares
in the absence of the restrictions as required under the chapeau of
Article XIII:2, exclusion of a non-Member, particularly if it is an
efficient supplier, would not serve that purpose.

This interpretation is also confirmed by the
use in Article XIII:2(d) of the term ‘of the total quantity or value
of imports of the product’ without limiting the total quantity to
imports from Members.

The conclusion above is not affected by the
fact that the TRQ in question was opened as compensatory adjustment
under Article XXVIII because Article XIII is a general provision
regarding the non-discriminatory administration of import restrictions
applicable to any TRQs regardless of their origin.”(938)

667.
The Panel Report on EC — Bananas III
(21.5 — Ecuador II) found that the EC banana regime as amended
failed to “aim at a distribution of trade in [bananas] approaching as
closely as possible the shares which the various [Members, including
both ACP and MFN countries] might be expected to obtain in the absence
of such restrictions,” based on the exclusion of MFN producers from
the tariff rate quota, and statements by the EC and ACP countries
indicating that the preferential tariff quota regime was indispensable
to the existence of ACP exports to the EC. The Panel consequently found
that “on its face the European Communities’ current banana import
regime, including its preferential ACP tariff quota, is inconsistent
with the chapeau of Article XIII:2 of the GATT
1994.”(939)

668.
The Panel in US — Line Pipe, in
a finding not reviewed by the Appellate Body, held that the US safeguard
measure described in paragraph 663 was inconsistent with Article
XIII:2(a), because the measure did not fix an overall quantity of
imports eligible for the lower tariff rate, and the US had not
demonstrated that it was not practicable to do so; the Panel observed
that “we see no reason why the United States could not have chosen
another type of measure consistent with the general rule set forth in
the chapeau of Article XIII:2.”(940) The Panel held:

“Irrespective of whether or not tariff
quotas constitute ‘quotas’ within the meaning of Article
XIII:2(a),
tariff quotas are necessarily subject to the disciplines contained in
Article XIII:2(a) as a result of the express language of Article
XIII:5.
Thus, Article XIII:2(a) must have meaning in the context of tariff
quotas. We believe that, in respect of tariff quotas, Article XIII:2(a)
requires Members to fix, wherever practicable, the total amount of
imports permitted at the lower tariff rate.(941)”(942)

(c) Article XIII:2(b): import licensing
schemes

669.
Article 4 of the Understanding on the
Balance-of-Payments Provisions of the GATT 1994 provides that “In the
administration of quantitative restrictions, a Member shall use
discretionary licensing only when unavoidable and shall phase it out
progressively. Appropriate justification shall be provided as to the
criteria used to determine allowable import quantities or values.”

“Article XIII:2(d) … specifies the
treatment that, in case of country-specific allocation of tariff quota
shares, must be given to Members with ‘a substantial interest in
supplying the product concerned’. For those Members, the Member
proposing to impose restrictions may seek agreement with them as
provided in Article XIII:2(d), first sentence. If that is not reasonably
practicable, then it must allot shares in the quota (or tariff quota) to
them on the basis of the criteria specified in Article
XIII:2(d), second
sentence.

The terms of Article XIII:2(d) make clear that
the combined use of agreements and unilateral allocations to Members
with substantial interests is not permitted. The text of Article
XIII:2(d) provides that where the first ‘method’, i.e., agreement,
is not reasonably practicable, then an allocation must be made. Thus, in
the absence of agreements with all Members having a substantial interest
in supplying the product, the Member applying the restriction must
allocate shares in accordance with the rules of Article
XIII:2(d),
second sentence. In the absence of this rule, the Member allocating
shares could reach agreements with some Members having a substantial
interest in supplying the product that discriminated against other
Members having a substantial interest supplying the product, even if
those other Members objected to the shares they were to be allocated.”(943)

671.
The Appellate Body Report on EC —
Poultry rejected Brazil’s claim that a bilateral agreement with
the EC constituted an agreement under Article XIII:2(d) to allocate the
entire amount of a tariff quota to Brazil, and observed:

“To conform to Article
XIII:2(d), all other
Members having a ‘substantial interest’ in supplying the product
concerned would have to agree. That is not the case here. As the
European Communities did not seek an agreement with Thailand, the other
contracting party having a substantial interest in the supply of frozen
poultry meat to the European Communities at that time, the Oilseeds
Agreement cannot be considered an agreement within the meaning of
Article XIII:2(d) of the GATT 1994.”(944)

(ii) “among supplying countries”:
Allocation of import quotas to Members other than those with a “substantial
interest”

672.
The Panel in EC — Bananas III,
in a finding not addressed by the Appellate Body, found that
country-specific quota shares can be allocated to Members that do not
have a substantial interest in supplying the product; the Panel
emphasized that any allocation to Members not having a substantial
interest in supplying the product at issue would have to comply with the
principle of nondiscrimination. The Panel endorsed allocation on the
basis of imports during a representative period consisting of the three
years prior to the quota:

“ … we note that the first sentence of
Article XIII:2(d) refers to allocation of a quota ‘among supplying
countries’. This could be read to imply that an allocation may also be
made to Members that do not have a substantial interest in supplying the
product. If this interpretation is accepted, any such allocation must,
however, meet the requirements of Article XIII:1 and the general rule in
the chapeau to Article XIII:2(d). Therefore, if a Member wishes to
allocate shares of a tariff quota to some suppliers without a
substantial interest, then such shares must be allocated to all such
suppliers. Otherwise, imports from Members would not be similarly
restricted as required by Article XIII:1.(945) As to the second
point, in such a case it would be required to use the same method as was
used to allocate the country-specific shares to the Members having a
substantial interest in supplying the product, because otherwise the
requirements of Article XIII:1 would also not be met.

…

In so far as this in practice results in the
use of an ‘others’ category for all Members not having a substantial
interest in supplying the product, it comports well with the object and
purpose of Article XIII, as expressed in the general rule to the chapeau
to Article XIII:2. When a significant share of a tariff quota is
assigned to ‘others’, the import market will evolve with the minimum
amount of distortion. Members not having a substantial supplying
interest will be able, if sufficiently competitive, to gain market share
in the ‘others’ category and possibly achieve ‘substantial
supplying interest’ status which, in turn, would provide them the
opportunity to receive a country-specific allocation by invoking the
provisions of Article XIII:4. New entrants will be able to compete in
the market, and likewise have an opportunity to gain ‘substantial
supplying interest’ status. For the share of the market allocated to
Members with a substantial interest in supplying the product, the
situation may also evolve in light of adjustments following
consultations under Article XIII:4. In comparison to a situation where
country-specific shares are allocated to all supplying countries,
including Members with minor market shares, this result is less likely
to lead to a long-term freezing of market shares. This is, in our view,
consistent with the terms, object and purpose, and context of Article
XIII.”(946)

673.
The Panel in EC — Bananas III
(Article 21.5 — Ecuador) examined the consistency with Article
XIII of the European Communities’ regime for imports of bananas, as
revised by the European Communities in response to the DSB’s
recommendation. In this revised regime, bananas could be imported under
the MFN tariff-rate quota on the basis of past trade performance by
exporting countries during the past representative period from 1994 to
1996, while bananas from traditional ACP supplier countries could be
imported up to a collective amount which was originally set to reflect
the overall amount of the pre-1991 best-ever export by individual
traditional ACP suppliers. The Panel found the revised regime to be
inconsistent with Article XIII:2(d):

“[F]or traditional ACP supplier countries
the average exports during the three-year period from 1994 to 1996 were
collectively at a level of approximately 685,000 tonnes, which is only
about 80 per cent of the 857,700 tonnes reserved for traditional ACP
imports under the previous as well as under the revised regime. In
contrast, the MFN tariff quota of 2.2 million tonnes (autonomously
increased by 353,000 tonnes) has been virtually filled since its
creation (over 95 per cent) and there have been some out-of-quota
imports. Thus, the allocation of an 857,700 tonne tariff quota for
traditional banana imports from ACP States is inconsistent with the
requirements of Article XIII:2(d) because the EC regime clearly does not
aim at a distribution of trade approaching as closely as possible the
shares which various Members might be expected to obtain in the absence
of restrictions.”(947)

(iii) Allocation of quotas to non-Members and
newly acceded Members

674.
In EC — Poultry, the Appellate
Body upheld the Panel’s finding that the European Communities acted
consistently with Article XIII in calculating a tariff-rate quota share
for a Member based upon the total quantity of imports including those
from non-Members.(948) See also paragraph 666
above. See also
under Article XIII:4 regarding adjustment of quotas in light of the
accession to the WTO of a supplier.

675.
With respect to GATT practice concerning
the allocation of quotas.

4. Article XIII:4: Adjustment of quota
allocation

676.
The Panel in EC — Bananas III,
in a finding not addressed by the Appellate Body, discussed the
obligations of a Member that maintains an allocated tariff quota to
adjust the allocation to take into account the rights of a new WTO
Member that is a substantial supplier:

“The general rule in the chapeau to Article
XIII:2 indicates that the aim of Article XIII:2 is to give to Members
the share of trade that they might be expected to obtain in the absence
of a tariff quota. There is no requirement that a Member allocating
shares of a tariff quota negotiate with non-Members, but when such
countries accede to the WTO, they acquire rights, just as any other
Member has under Article XIII whether or not they have a substantial
interest in supplying the product in question.

[A]lthough the EC reached an agreement with
all Members who had a substantial interest in supplying the product at
one point in time, under the consultation provisions of Article
XIII:4,
the EC would have to consider the interests of a new Member who had a
substantial interest in supplying the product if that new Member
requested it to do so.(949) The provisions on consultations and
adjustments in Article XIII:4 mean in any event that the BFA could not
be invoked to justify a permanent allocation of tariff quota shares.
Moreover, while new Members cannot challenge the EC’s agreements with
Colombia and Costa Rica in the BFA on the grounds that the EC failed to
negotiate and reach agreement with them, they otherwise have the same
rights as those Complainants who were GATT contracting parties at the
time the BFA was negotiated to challenge its consistency with Article
XIII. Generally speaking, all Members benefit from all WTO rights.”(950)

678.
The Panel in EC — Bananas III
(Article 21.5 — Ecuador) found that “a tariff quota is a
quantitative limit on the availability of a specific tariff rate”.(951)

679.
The Panel in US — Line Pipe
examined a US safeguard measure which provided that, for three years and
one day, a higher tariff (declining each year) would be imposed on all
imports from each country in excess of 9,000 short tons. Mexico and
Canada were excluded from the remedy. As a threshold measure, the Panel
determined that “the line pipe measure at issue is a tariff quota,
since there are country-specific limits (9000 short tons) placed on the
application, or availability, of the lower tariff rate, and it is these
country-specific limits that determine whether or not line pipe from
specific countries enters the United States at the lower or higher rate
of duty”.(952) The Panel Report also holds that “By virtue of
Article XIII:5, Article XIII:2(a) applies to tariff quotas. … a tariff
quota may exist, even though no overall limit is provided for.(953)

“The words ‘any’ (both before the terms
‘tariff quota’ and ‘contracting party’) and ‘shall’ in
Article XIII:5 underscore the absolute and categorical nature of the
application of ‘the provisions of … Article [XIII]’ to tariff
quotas. The Panel notes also that Article XIII:5 uses the term ‘any
tariff quota instituted or maintained by any [Member]’ in the
singular. The Panel reads this to mean that Article XIII of the GATT
1994 is also applicable to one single tariff quota, and that this is so
irrespective of whether that single tariff quota is part of an import
regime with more tariff quotas or is part of an import regime that
comprises only one tariff quota.”(954)

681.
On appeal, the Appellate Body also
addressed this issue:

“In contrast to quantitative restrictions,
tariff quotas do not fall under the prohibition in Article XI:1 and are
in principle lawful under the GATT 1994, provided that quota tariff
rates are applied consistently with Article
I. Members are required, in
accordance with Article II, to provide treatment no less favourable than
that bound in their Schedules of Concessions. Accordingly, in-quota and
out-of-quota tariffs must not exceed bound tariff rates, and import
quantities made available under the tariff quota must not fall short of
the scheduled amount. In addition, tariff quotas are, under the terms of
Article XIII:5, made subject to the disciplines of Article
XIII.”(955)

(b) Export quota allocation

6. Relationship with other GATT provisions

(a) Article I

682.
In EC — Bananas III, the
European Communities argued that even though the waiver for EC measures
under the Lomé Convention only waived GATT Article
I:1, the
Lomé waiver also excused violation of Article XIII by discriminatory
tariff quota allocation measures pursuant to the Lomé Convention Banana
Protocol, due to the inherent substantive link between Articles I and
XIII. While the Panel agreed with the European Communities’ argument,
the Appellate Body rejected it.(956) The Panel in EC —
Bananas III (21.5 — Ecuador II) commented on this finding: “the
rejection by the Appellate Body of the panel’s finding on the scope of
the Lomé Waiver indicates that Articles I and
XIII of the GATT 1994 do
not have the same scope, and that an inconsistency with Article XIII is
possible irrespective of an inconsistency with Article
I.”(957)

683.
In EC — Bananas III (21.5 —
Ecuador II), the Panel examined a measure consisting of a duty-free
tariff quota for bananas from ACP countries, combined with an MFN
applied specific duty. The Panel found that this preferential duty-free
tariff quota for ACP countries was subject to Article
XIII, stating:

“[I]t is the very quantitative limit that
establishes the applicability of Article XIII of the GATT 1994 to the
European Communities’ preferential tariff quota for ACP countries, not
the specific level of the quantitative limit, nor whether MFN countries
are also subject to a tariff quota or only an MFN tariff. The Panel
therefore rejects the argument made by the European Communities that ‘the
fact that the ACP countries enjoy a trade preference and the fact that
there is a “cap” imposed on the quantities of ACP bananas that can
benefit from this preference may be relevant for purposes of GATT
Article I, but are completely irrelevant for the application of GATT
Article XIII.’”(958)

685.
The Panel in Colombia — Ports of
Entry, like a number of other panels(959), declined to make
findings in relation to a claim under Article XIII:1 regarding a
quantitative restriction that it had found to be prohibited under
Article XI:1:

“ … in addition to being a prohibited
restriction within the meaning of Article XI:1, the ports of entry
measure is imposed only on certain textile, apparel or footwear goods
arriving from Panama, independent of the products’ origin, and not
like-product imports originating in, and shipped from, any other Member
or third country. Whether or not it is discriminatory in its design, the
restrictions on ports of entry are prohibited under Article
XI:1.”(960)

687.
The EC — Poultry dispute
concerned a tariff quota on imports into the European Communities, which
had been agreed with Brazil as compensation under Article XXVIII; Brazil
argued that the EC had failed to implement a bilateral agreement under
which the tariff quota was to be allocated only to imports from Brazil.
Brazil argued that Articles I and
XIII of GATT do not apply to
tariff quotas provided as compensation under Article XXVIII, and argued
that the tariff quota’s administration had violated Article
XIII. The
Appellate Body stated that “the concessions contained in Schedule LXXX
pertaining to the tariff-rate quota for frozen poultry meat must be
consistent with Articles I and
XIII of the GATT 1994.”(963) The
Appellate Body opined that compensatory measures negotiated under
Article XXVIII remain subject to GATT Articles I and
XIII, citing the
negotiating history of Article XXVIII:

“We see nothing in Article XXVII to suggest
that compensation negotiated within its framework may be exempt from
compliance with the non-discrimination principle inscribed in Articles I
and XIII of the GATT 1994. As the Panel observed, this interpretation
is, furthermore, supported by the negotiating history of Article XXVIII.
Regarding the provision which eventually became Article
XXVIII:3, the
Chairman of the Tariff Agreements Committee at Geneva in 1947,
concluded:

‘It was agreed that there was no intention
to interfere in any way with the operation of the most-favoured-nation
clause. This Article is headed “Modification of Schedules”. It
refers throughout to concessions negotiated under paragraph 1 of Article
II, the Schedules, and there is no reference to Article
I, which is the
Most-Favoured-Nation Clause. Therefore, I think the intent is clear:
that in no way should this Article interfere with the operation of the
Most-Favoured-Nation Clause.’(964)

688.
With respect to GATT practice concerning
the relationship of Article XIII with other
Articles.

7. Relationship with other WTO Agreements

(a) Agreement on Agriculture

689.
In EC — Bananas III, the
European Communities argued that, in light of the meaning and intent of
Articles 4.1 and 21.1 of the Agreement on
Agriculture, it was permitted,
with respect to market access concessions, to act inconsistently with
the requirements of Article XIII of the GATT 1994. The Panel
concluded that the Agreement on Agriculture did not permit the European
Communities to act inconsistently with Article
XIII. The Appellate Body
confirmed the Panel’s finding:

“[W]e do not see anything in Article 4.1 to
suggest that market access concessions and commitments made as a result
of the Uruguay Round negotiations on agriculture can be inconsistent
with the provisions of Article XIII of the GATT
1994. There is nothing
in Articles 4.1 or 4.2, or in any other article of the Agreement on
Agriculture, that deals specifically with the allocation of tariff
quotas on agricultural products. If the negotiators had intended to
permit Members to act inconsistently with Article XIII of the GATT
1994,
they would have said so explicitly. The Agreement on Agriculture
contains several specific provisions dealing with the relationship
between articles of the Agreement on Agriculture and the GATT
1994. For example, Article 5 of the Agreement on Agriculture
allows Members to impose special safeguards measures that would
otherwise be inconsistent with Article XIX of the GATT 1994 and with the
Agreement on Safeguards. In addition, Article 13 of the Agreement
on Agriculture provides that, during the implementation period for
that agreement, Members may not bring dispute settlement actions under
either Article XVI of the GATT 1994 or
Part III of the Agreement on
Subsidies and Countervailing Measures for domestic support measures
or export subsidy measures that conform fully with the provisions of the
Agreement on Agriculture. With these examples in mind, we believe
it is significant that Article 13 of the Agreement on Agriculture
does not, by its terms, prevent dispute settlement actions relating to
the consistency of market access concessions for agricultural products
with Article XIII of the GATT 1994. As we have noted, the negotiators of
the Agreement on Agriculture did not hesitate to specify such
limitations elsewhere in that agreement; had they intended to do so with
respect to Article XIII of the GATT 1994, they could, and presumably
would, have done so. We note further that the Agreement on
Agriculture makes no reference to the Modalities document(966)
or to any ‘common understanding’ among the negotiators of the Agreement
on Agriculture that the market access commitments for agricultural
products would not be subject to Article XIII of the GATT
1994.”(967)

(b) Agreement on Safeguards

690.
The Panel in US — Line Pipe held,
in a statement not reviewed by the Appellate Body, that Article XIII
applies to tariff quota safeguard measures, in addition to the
Safeguards Agreement. In support of its finding, the Panel argued that a
contrary finding would open the door for discriminatory tariff rate
quotas, which would be inconsistent with the objectives set out in the
preamble of the Safeguards Agreement:

“[I]t is the paucity of disciplines
governing the application of tariff quota safeguard measures in Article
5 of the Safeguards Agreement that supports our interpretation of
Article XIII. If Article XIII did not apply to tariff quota safeguard
measures, such safeguard measures would escape the majority of the
disciplines set forth in Article
5. This is an important consideration,
given the quantitative aspect of a tariff quota. For example, if Article
XIII did not apply, quantitative criteria regarding the availability of
lower tariff rates could be introduced in a discriminatory manner,
without any consideration to prior quantitative performance.(968)
In our view, the potential for such discrimination is contrary to the
object and purpose of both the Safeguards Agreement, and the WTO
Agreement. In this regard, the preamble of the Safeguards Agreement
refers to the “need to clarify and reinforce the disciplines of GATT
1994” in the context of safeguards. We consider that the ‘disciplines
of GATT 1994’ surely include those providing for non-discrimination.
In any event ‘the elimination of discriminatory treatment in
international trade relations’ is referred to explicitly in the
preamble to the WTO Agreement. We further note that the preamble of the
Safeguards Agreement also mentions that one of the objectives of the
Safeguards Agreement is to ‘establish multilateral control over
safeguards and eliminate measures that escape such control’. We are of
the view that non-application of Article XIII in the context of
safeguards would result in tariff quota safeguard measures partially
escaping the control of multilateral disciplines. This result would be
contrary to the objectives set out in the preamble of the Safeguards
Agreement.”(969)

“Just because some provisions of Article
XIII are replicated in the Safeguards Agreement, that alone does not
mean that the remaining provisions cease to be binding on Members. … (970)
We therefore decline to draw any conclusions from the fact that certain
Article XIII provisions are not replicated in the Safeguards Agreement.
Like the Appellate Body, we consider that if the Uruguay Round
negotiators had intended to expressly omit Article XIII from the
safeguards context, ‘they would and could have said so in the
Agreement on Safeguards. They did not’.(971)

Footnotes

840. As an example, the footnote to this
sentence refers to paras. 2 and 3 of the GATT 1994 Understanding on the
Balance-of-Payments Provisions, which both, according to the Panel,
“provide that Members shall seek to avoid the imposition of new
quantitative restrictions for balance-of-payments purposes.” Back to text

841. (footnote original) The
Agreement on Safeguards also evidences a preference for the use of
tariffs. Article 6 provides that provisional safeguard measures
“should take the form of tariff increases” and Article 11 prohibits
the use of voluntary export restraints. Back to text

842. (footnote original) Under the
Agreement on Agriculture, notwithstanding the fact that contracting
parties, for over 48 years, had been relying a great deal on import
restrictions and other non-tariff measures, the use of quantitative
restrictions and other non-tariff measures was prohibited and Members
had to proceed to a “tariffication” exercise to transform
quantitative restrictions into tariff based measures. Back to text

855. (footnote original) As we
understand it, Article XI:1 does not
incorporate an obligation to exercise “due diligence” in the
introduction and maintenance of governmental measures beyond the need to
ensure the conformity with Article XI:1 of
those measures taken alone. Back to text

868. (footnote original) See Panel
Report on US — Tuna (EEC), para. 5.17–5.18, and Panel Report,
US — Tuna (Mexico), para. 5.10. Speaking of the relevance for
panels of previous reports, the Appellate Body has stated, with respect
to adopted panel reports:
“Adopted panel reports are an important part
of the GATT acquis. They are often considered by subsequent
panels. They create legitimate expectations among WTO Members, and,
therefore, should be taken into account where they are relevant to any
dispute”. (Appellate Body Report, Japan — Alcoholic Beverages II,
p. 14)
Regarding unadopted panel reports, the
Appellate Body agreed with the panel in the same case that:
“a panel could nevertheless find useful
guidance in the reasoning of an unadopted panel report that it
considered to be relevant”. (Appellate Body Report, Japan —
Alcoholic Beverages II, p. 15) Back to text

884. (footnote original) Panel Report
on EEC — Programmes of Minimum Import Prices, Licences and Surety
Deposits for Certain Processed Fruits and Vegetables, adopted on 18
October 1978, BISD 25S/68, para. 4.9. Similarly, a panel found that a
measure limiting exports below a certain price was within the scope of Article
XI:1. Panel Report on Japan — Trade in Semiconductors, …,
para. 105. Back to text

885. (footnote original) Panel Report
on Canada — Import, Distribution and Sale of Alcoholic Drinks by
Canadian Provincial Marketing Agencies, adopted on 22 March 1988,
BISD 35S/37, para. 4.24. This case involved state trading operations and
the panel emphasized that the Note
Ad Articles XI, XII, XIII, XIV and XVIII referred to
“restrictions” generally and not to “import restrictions”. It
accordingly considered restrictions on distribution as within the
meaning of “other measures” under Article
XI:1, even though such measures might be examined also under Article
III:4. Here the restrictions at issue, although related to
distribution, are on importation. Back to text

889. (footnote original) The Panel is
of the view that a finding whereby Colombia were allowed to restrict
access to two ports of entry for goods arriving from a particular Member
or Members, would open the door for other WTO Members to do the same.
For example, one GATT Contracting Party required all VCRs to enter its
territory at a small inland customs office in the town of Poitiers. …
Back to text

891. (footnote original) Panel
Report on Korea — Various Measures on Beef, para 115:
“The mere existence of producer-controlled import monopolies could not
be considered as a separate import restriction inconsistent with the
General Agreement. The Panel noted, however, that the activities of such
enterprises had to conform to a number of rules contained in the General
Agreement, including those of Article
XVII and Article XI:1”. Back to text

937. (footnote original) We note in
this regard that in the Bananas III case, the panel made the
following observation (which was not affected by the subsequent appeal):
“The consequence of the foregoing analysis is that Members may be
effectively required to use a general ‘others’ category for all
suppliers other than Members with a substantial interest in supplying
the product. The fact that in this situation tariff quota shares are
allocated to some Members, notably those having a substantial interest
in supplying the product, but not to others that do not have a
substantial interest in supplying the product, would not necessarily be
in conflict with Article XIII:1. While the
requirement of Article XIII:2(d) is not
expressed as an exception to the requirements of Article
XIII:1, it may be regarded, to the extent that its practical
application is inconsistent with it, as lex specialis in respect
of Members with a substantial interest in supplying the product
concerned”. See Panel Reports on EC — Bananas III, para.
7.75. The quoted passage, particularly the use of the phrase “all
suppliers other than Members with a substantial interest in
supplying the product” (emphasis added), indicates that the Bananas
III panel did not take the view that allocation of quota shares to
non-Members under Article XIII:2(d) was not
permitted. Back to text

941. (footnote original) The
obligation cannot extend to fixing the total amount of permitted imports
at the higher tariff rate, because that would effectively undermine the
distinction between tariff quotas and quantitative restrictions. Back to text

945. (footnote original) In this
regard, we note with approval the statement by the 1980 Chilean
Apples panel:
“[I]n keeping with normal GATT practice, the
Panel considered it appropriate to use as a ‘representative period’
a three-year period previous to 1979, the year in which the EC measures
were in effect. Due to the existence of restrictions in 1976, the Panel
held that that year could not be considered as representative, and that
the year immediately preceding 1976 should be used instead. The Panel
thus chose the years 1975, 1977, 1978 as a ‘representative
period’”.
Panel Report on “EEC Restrictions on Imports
of Dessert Apples — Complaint by Chile”, adopted on 10 November
1980, BISD 27S/98, 113, para. 4.8. In the report of the “Panel on
Poultry”, issued on 21 November 1963, GATT Doc. L/2088, para. 10, the
Panel stated: “[T]he shares in the reference period of the various
exporting countries in the Swiss market, which was free and competitive,
afforded a fair guide as to the proportion of the increased German
poultry consumption likely to be taken up by United States exports”.
See also Panel Report, “Japan — Restrictions on Imports of Certain
Agricultural Products”, adopted on 22 March 1988, BISD 35S/163,
226–227, para. 5.1.3.7. Back to text

949. (footnote original) While the
provisions of Article XIII:4 on consultations
and adjustments seem to be primarily aimed at adjustments to quota
shares allocated pursuant to Article XIII:2(d),
second sentence, they also apply in the case where agreements were
reached pursuant to Article XIII:2(d), first
sentence, with Members having a substantial interest in supplying the
product concerned. In addition, in so far as a new Member has a
substantial interest in supplying that product, its share of the
“others” category can be viewed, for purposes of Article
XIII:4, as a provision established unilaterally relating to the
allocation of an adequate quota. Back to text

968. (footnote original) The same
concern does not arise in respect of tariff measures — which also
appear not to be covered by all Article 5 disciplines — because tariff
measures affect all exporting Members equally. Back to text

970. (footnote original) There may be
good reasons for replicating only certain Article XIII disciplines in
the Safeguards Agreement. For example, only certain Article
XIII:2(d) disciplines may have been replicated in Article 5.2(a)
because of the introduction through the Safeguards Agreement of quota
modulation, which negotiators apparently did not want to apply in
respect of all Article XIII:2(d)
disciplines. The fact that Article XIII:2(d)
is not replicated in its entirety in Article 5.2(a) does not necessarily
mean that the non-replicated disciplines no longer apply; on the
contrary, it may mean that Article 5.2(b) quota modulation does not
allow Members to depart from those non-replicated Article
XIII:2(d) disciplines. In other words, since quota modulation may
not have been intended to apply in respect of all Article
XIII:2(d) disciplines, it may have been necessary to specify in
Article 5.2(a) precisely which Article XIII:2(d)
disciplines it does apply to. Back to text